Growth in business activities leads to business expansion. If a business is performing well in the home market, it is logical to establish a child company in a targeted location. Some people call it other names such as representative office, subsidiary company, or the branch office. In fact, these are different companies.
BRANCH OFFICE
This is another office that is different from the parent office. It performs the business activities of the company in a different target location. Such offices also have several departments such as Accounting, HR, and marketing. All these are still owned by the parent company.
Benefits of a Branch Office
Audit Stream
The audit process turns out to more complicated once it reaches the international level. Things can be simplified with the establishment of the branch office. The funds that flow between the parent and the branch office can be tracked easily and the audit process made faster.
Low Administrative Burden
Setting up a representative office takes away the need to separate the finance function. Audited accounts also have to be submitted.
Tax Benefit
This is the best benefit of a branch office. Corporate tax in the UAE is 0 percent, which makes the country worthy of establishing a branch.
Cost-effective Route towards a New Market
There is no shared capital required for establishing a representative office. What needs to be cleared are the following: applications, standard fees, and initial deposits, which can be cost-effective.
REPRESENTATIVE OFFICE
This company is established by the parent company in a foreign location to perform the marketing and non-transactional tasks. These are easier to set up.
Benefits of a Representative Office
Multiple Shareholders
It is easy to set up a representative office with multiple shareholders having an upper limit of 50.
Pricing Structure
The total cost of setting up a representative office in the UAE is approximately AED 100,000.
No Share Capital
It is possible to set up a representative office without any minimum shared capital.
Types of Business Entities in the UAE
It is possible for companies abroad to set up business entity structures depending on the business activities conducted:
Branch Company
This is the same as the parent company and corporate shareholder that can be based within the UAE or abroad. A parent company is not similar to a branch company. The only difference is that the sole owner of the branch company remains to be the parent company. The child company makes use of the articles of association of the parent company.
Representative Office
The parent company can be a parent company or a foreign company. The major difference is that the representative office cannot make individual profits. Their business activities are also limited to the promotion and sourcing of a parent company.
Corporate Shareholder
This is a business entity that owns shares in a different limited company but possesses the rights of a non-corporate shareholder. The parent company can be either in the UAE or abroad. This allows for the following: voting at general meetings, receiving portions of business profits as dividends, and receiving capital contribution if ever the company folds up.
SUBSIDIARY
This is the most unique of all types of business structures. It has an individual identity and it can perform its own business activities. The parent company may be based in the UAE or in a foreign country, but its mandate is for its management to be based locally.
How to Establish a Branch Office in the UAE
These are the few steps to establishing the branch office in the UAE:
Identifying the Local Agents
This is the initial task that is required. It is important to choose a local agent before the establishment of a branch office or a representative office. It is also required for the local agent to be a UAE national or for the company to be owned by a UAE national.
Apply for the Reservation of a Trade Name
It is necessary to send an application to the UAE’s Department of Economic Development (DED). This states the trade name reservation and approval of office registration.
Apply to the Ministry of Economy
It is important to state the important details of the company to give the Ministry of Economy a clear image of it. Some of the details needed are the head office info, name of the general manager in the UAE, shared capital, nature of the business, and compulsory documents that are required to be approved.
Acquire a License from the DED
When all these documents are evaluated and approved, the DED will issue a letter of approval to the Dubai Department of Economic Development or the Abu Dhabi Department of Economic Development. At the point, the following documents must also be submitted:
- Copies of documents submitted to MOE
- MOE approval and other approval applications in the industry
- Undertaking originating at the foreign parent company
- Copy of the proposed lease in the UAE
- Letter from the UAE auditor that confirms its existence, summarizing the parent company’s two-year financial statements
When these are evaluated and approved, a commercial license will be provided by the DED which will be valid for a year and to be renewed yearly as well.
Perform Administrative Tasks
Upon receipt of the license, other tasks are required for company incorporation such as bank account opening, office space, applying for a visa, and also labor cards for employees.
Be a Member of a Chamber of Commerce and Industry
This is the last step. And the requirements are commercial license issued by the DED and copies of the office lease agreement.
Documents Required to Set Up a Branch Office in the UAE:
As observed, documentation has a major role to play in setting up a branch office:
- Power of attorney in favor of the general manager
- Registration of trade name and initial approval forms
- Audited accounts for the last two years of the parent company
- Notarized agreement with the local agent
- Director’s passport copy
- Certification of Incorporation, Articles of Association, and Memorandum of Association
- Approval from the government
- Board resolution that authorizes the branch office opening and also certificate of good standing
- The statement which highlights the company’s goals and major operational activities
It is also required for a representative office to be registered at the following offices:
- Company registrar
- Chamber of commerce
- Ministry of Economy and Commerce
Benefits of Establishing a Branch or a Representative Office in the UAE
The following are the benefits of setting up a representative or a branch office:
- Flexibility of owning a bank account
- 0% corporate tax
- 100% ownership option for foreign investors
- Business privacy is completely maintained
- 0% personal tax
- A minimal charge of 5% for imports
Extending the parent company through setting up a representative company or a branch office which will help in the capture of the mass market in different regions around the world. If you’re planning to create a branch in Dubai, you must read and understand everything written in this article. If you want some professional advice, don’t hesitate to contact HBS Dubai.
